WEAKNESSES

Vulnerable to the international economic cycle and the political instability in the Near and Middle East

Imbalance in the public and external accounts, resulting in a reliance on aid and foreign capital

High unemployment

Risk assessment

Resilient growth despite an increasingly critical regional situation

Although it has slowed, Jordanian growth proved resilient in 2015 and is expected to remain so in 2016. Household consumption, which benefited from increased purchasing power following the drop in hydrocarbon prices, will continue to sustain activity. The entry into force of the Vision 2025 development plan in 2016 and the resulting growth in public investment will offset the adverse impact of the contraction in exports. The investor confidence indicator, which has been falling continuously since January 2015, will continue on a downward trend in 2016. The negative outlook linked to the worsening situation in Syria and Iraq in 2016 following the expected intensification of coalition airstrikes will continue to put pressure on exports, tourism and productive investment. The improvement in manufacturing output, already observed in 2015, will continue to benefit from lower production costs, consolidating activity. Inflation, which has stayed close to zero, will rise gradually in 2016 as the impact of low hydrocarbon prices lessens. Refugees from Syria and Iraq, whose numbers could well grow, will continue to put pressure on a labour market with low employment rates.

Consolidation of public deficits

After significantly narrowing in 2015, Jordan's public deficit will widen only slightly in 2016. Weak economic performance as well as the slight dip in activity expected in 2016 will impact on revenue. Moreover, implementing the Vision 2025 plan will trigger a probable rise in public spending. Nevertheless, finalising the consolidation programme put in place with the IMF and the favourable economic picture associated with the drop in hydrocarbon prices have enabled the authorities to further consolidate their fiscal balances. The move to reduce energy subsidies, begun in 2015 will be extended into 2016. In addition, low hydrocarbon costs will help to limit the State's involvement in the losses incurred by the national electricity company, NEPCO. The reduction in the public deficit levels will lead to stabilisation of the public debt in 2016, even though the latter will remain high. Jordan is also planning to request renewed support from the IMF after completion of the seventh review under the institution's Stand-By arrangement. Jordan continues, moreover, to enjoy the support of the Gulf Co-operation Council, even though this aid is likely to be subject to the slowdown observed in the oil-rich countries.

An improving current account

Jordan is still one of the very few net importers of oil in the region to have benefited from the weak hydrocarbon prices in 2015. The country's lower energy bill enabled a substantial decline in the current account deficit despite a recorded fall in exports. The external balances will continue to be affected by the lack of progress on the conflict in Syria and Iraq in 2015 and the unlikeliness of the region being pacified in 2016. The intensification of the conflicts in the region will lead to a fall in exports, which will also be affected by lower Indian demand for phosphates. The effect of lower commodity prices would then fade. Strong internal demand, fuelled by the influx of refugees is likely to sustain imports. Receipts from tourism are likely to decline as the climate of insecurity grows. Worsening confidence indicators will limit the influx of foreign direct investments, which have fallen sharply since early 2015. Remittances will also be hit by the slowdown observed in the Gulf Cooperation Council countries. Meanwhile, foreign exchange reserves have stabilised at a satisfactory level, representing 7 months of imports in 2015.

Island of political stability in an increasingly complex regional conflict

Bordering both Syria and Iraq Jordan is directly affected by the instability which characterises the region. Jordan's monarchy, which opted for a position of neutrality during the first years of the Syrian conflict, took its time before joining the coalition against Daesh. The country has remained relatively unscathed by the conflict but the risk of the frontline moving to its territory is significant. Daesh's army has a contingent of over 2,000 Jordanians, and Jordan is regularly named as a Jihadist target. Internally, Jordan is at risk of an escalation in social tensions, in particular between the Jordanian population and the Syrian and Iraqi refugees which, according to the HCR, account for 10% of the population. Meanwhile, a section of the mostly Sunni population remains susceptible to the ideas propagated by Daesh, in a war in which faith-based issues are playing an increasing part.